The Postal Service's bid to raise the cost of mailing a letter by 2 cents was rejected Thursday, denying the agency immediate relief from a worsening financial crisis.
The Postal Service lost $3.8 billion last year and is headed toward an approximately $7 billion loss this year as people do more business on the Internet and the recession erodes the volume of marketing mail.
In July the post office had asked for a special rate increase for letters, postcards, periodicals, parcels and other services as one of several steps to cut its losses. The agency also had suggested cutting delivery service to five days a week and closing or consolidating offices — issues that were not addressed in Thursday's rate decision by the independent Postal Regulatory Commission.
The rate increase needed the commission's approval because it was higher than the rate of inflation.
The commission's unanimous denial of the increase was a signal to the post office to deal with what its chairman says is an even bigger financial problem — a $5.5-billion-a-year obligation to set money aside for future retiree health benefits.
Commission Chairwoman Ruth Goldway said the Postal Service's request failed to fully justify the rate increase. She said the requested rate adjustment was not due to the recent recession, as indicated by Postal Service officials, but rather was an attempt to address long-term structural problems.
"The case they needed to make, as far as we understand the law, is to relate the revenue they're requesting to the losses that were the impact of the recession," Goldway said after the meeting. "Instead, they explained how terrible the recession was, and then they said we have this liquidity crisis."
The Postal Service had asked Congress to allow it to defer setting aside the full amount for retiree health benefits, but lawmakers declined to go along. Postmaster General John Potter said in a statement that current projections show the agency won't have enough cash to make the payment next Sept. 30. The post office does not receive taxpayer funds for its operations.
Potter said the post office is "encouraged" that the regulators acknowledged the financial threat posed by the need to prepay retiree health benefits.
Fredric Rolando, president of the National Association of Letter Carriers, agreed that the prefunded benefits must be addressed.
"The Postmaster General and his top executives wasted the entire year seeking unpopular measures to eliminate Saturday delivery and stack the deck against employees in collective bargaining rather than focusing on the prefunding reform backed by mailers and the entire postal community," Rolando said.
Denial of the rate increase leaves the Postal Service with several options: a legal appeal, filing a new special rate-increase request with the commission or requesting a smaller rate hike that would be automatically approved if it's within the rate of inflation.
"We will need to take a much closer look at the ruling from the PRC in order to make an informed decision about what options we have and what may be the best course of action for our customers, our employees, our stakeholders and the American public," Potter said.
The commission's decision was applauded by the Affordable Mail Alliance, a coalition of postal customers that includes consumer groups, small business, charities, utilities, national retailers and banks.
"The PRC today has helped countless businesses stay competitive and saved tens of thousands of jobs," said Tony Conway, a spokesman for the alliance. "The commissioners recognized that imposing an additional tax on Postal Service customers is not the way to address its financial troubles. Our members look forward to working with the Postal Service on the long-term restructuring needed to restore the Postal Service to competitiveness."